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What's New at Berlin
September 12, 2003
 Dear customers and colleagues,
So far, 2003 has continued the pace of the last few years with significant events continuing to transpire in the steel industry and with Berlin Metals as well.
Since I wrote the last "What's New" letter in late January, ISG's offer for Bethlehem Steel was accepted and finalized. The consolidation of Bethlehem into ISG seems to be almost completed without any visible problems. As ISG had no Tin Mill assets before buying Bethlehem, the operations of Bethlehem's Tin Mill group out of Sparrows Point, Maryland was left more or less untouched from a sales, quality and operational perspective. So, as "ISG-Sparrows Point", the Tin Mill continues to produce at an annual rate of about 600,000 tons per year, making them the 3rd largest in the United States after US Steel and Weirton who are first and second respectively.
US Steel finally did prevail in their acquisition of National Steel in April and they, too, seem to have efficiently gone about the business of absorbing and consolidating operations, sales and administration. With the acquisition of National's Tin Mill assets, US Steel has insured their dominant position in the U.S. Tin Mill Product market. It's estimated that their Tin Mill Product shipments will be 1.5 million tons (not counting their share of USS- Posco, their joint venture with Korea's Pohang Steel) on an annual basis which is twice that of their nearest Tin Mill Product competitor, Weirton Steel.
Speaking of Weirton Steel, they finally fell victim to a host of problems including a weak hot and cold rolled sheet market, their own burden of legacy costs, an expensive debt load and a smaller overall size that didn't allow for some of the efficiencies enjoyed by the larger of their competitors, and were forced to file for Chapter 11 bankruptcy protection in the Spring. Though many of the Weirton employees would like for Weirton to remain an independent company, they may not be able to maintain long term viability without being acquired by another company. US Steel wouldn't be a possible acquirer as a purchase of Weirton would give them too big of a share of the tinplate market, something the Justice Department would be unlikely to approve. AK Steel may be a possibility but their own stock and balance sheet has taken a beating in the last year. ISG would, in my opinion, be a very strong contender, though they still have work to do to digest their acquisition of Bethlehem and they may have difficulty convincing Weirton's Independent Steel Workers Union to accept the same type of contract as other ISG union employees. An offshore mill like CSN out of Brazil could be a possibility if they felt that they, as foreigners, could work with Weirton's union. In whatever form it takes, I do believe Weirton Steel will continue as an operational entity producing quality Tin Mill Products. The consuming market would have a very difficult time if their 750,000 tons of Tin Mill Products went away.
Though an announcement is due soon, as of today, there's no news from Washington on what the President will decide to do after he receives the ITC's mid term review of the Section 201 action. Several months ago I felt there was absolutely no chance the President would decide to end the tariffs earlier than their original 3 year term. However, a few things have happened recently that has caused me to reevaluate.
First, a couple of months ago, the USW (United States Steelworkers Union) endorsed Richard Gephardt from Missouri as their choice for President in the 2004 election. They stated that they'd prefer anyone else but Bush. Getting their support was one of the reasons Bush decided to institute the 201's in the first place. If he's going to lose their support so far in advance of the election, it seems he has less to lose than he did before if he chooses to end the tariffs now.
Second, the consolidation of the steel mills- Nucor buys Trico, ISG combines LTV and Bethlehem and US Steel buys National- has happened. Sure, there's more to come, but the President can point to what's happened so far and take credit for helping provide the protections that allowed an orderly consolidation to proceed.
Third, the President needs help internationally for the rebuilding of Iraq. France and Germany, important allies for the US in the fight against terrorism and potential allies in the rebuilding of Iraq, have been historically large steel exporters to the US. Not coincidentally, they were opponents of the war and were hurt and angered by the imposition of the 201 tariffs which came before the war. They felt the tariffs were a violation of WTO agreements. Ending the tariffs would be something they'd like to see.
Fourth, and probably most importantly, the loss of several million jobs in the manufacturing sector over the last few years is currently getting big attention from the media. Republican and Democrat politicians are each pointing the finger at the other for not doing enough to help. These job losses , along with the health of the US economy overall, are turning into major issues for the upcoming Presidential campaign. Though the reasons for the lost manufacturing jobs probably have more to do with the currency values and the total cost of labor than the price of steel, the President can choose to end the tariffs early and take a symbolic action to help the global competitiveness of American manufacturers. The steelmakers will not be happy but with the dollar weaker against other currencies now than it has been in the last few years and with the relatively low transaction prices here in the US for many steel products, compared to other market areas, I don't believe there will be huge surge in import levels, though there will be an increase.
Even if President Bush decides to take no action to end the tariffs earlier than originally planned, they will expire on their own in the Spring of 2005 after dropping to 18% in the Spring of 2004 from the current level of 24%.
Here at Berlin, we've had a good year so far. We've added some new, important customers for Tin Mill Products, for Stainless Steel Strip and the toll slitting of painted aluminum coil. Though our long term customers generally aren't busier than they were last year, we've managed our inventory, our expenses, our machinery and our operation wisely and efficiently. We're fortunate to have a talented group of smart and experienced people working here at Berlin in all departments. Further, with some of the diverse end use markets we serve now, some of the seasonality has gone out of our sales and we're getting a more even loading of our production lines.
To help facilitate the purchases of customers who buy very small quantities, we will soon be accepting Master Card and Visa payments for steel. This will help minimize our administrative costs for credit and collection. If you're interested, please contact your sales representative.
In the quality arena, we've undertaken the process of planning for our certification for the latest automotive quality standard, TS 16949. We are planning on receiving our certification to this very demanding system in the first quarter of 2004. I'll have more information on this later this year.
In closing I'd like to say that as always, all of us here at Berlin wish you and your families and friends, peace, happiness and prosperity.
Sincerely,
Roy Berlin
Rberlin@berlinmetals.com
Other Newsletters:
July, 2006 July, 2005 March, 2004
January, 2003 April, 2002
September, 2001 May, 2001 January, 2001
August, 2000 April, 2000 |
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